Long-awaited reforms to Companies House and its Register of companies are now in motion in the form of the Economic Crime and Corporate Transparency Bill, 2.0, which will tackle the trickier aspects of curbing economic crime. It is hoped these reforms will make it easier for insolvency practitioners and restructuring specialists to fight the UK’s rising fraud problem and recoup monies that have been fraudulently acquired.
Insolvency practitioners (IPs) are required to investigate a company’s affairs and director conduct when appointed. To do this, IPs rely, in part, on the records of Companies House. The ability to access corporate records and information on directors, or identify where this information is missing or inaccurate, is a crucial part of IPs’ ability to carry out their statutory duties.
Tom Ahmad, a Director of Bailey Ahmad Business Recovery and ICAEW Croydon District President, says: “We use Companies House as a baseline check right at the beginning of the consultation phase. We use it as an early identification of the facts and who’s involved. The reforms will just give us more meaningful information upfront and surely that will help the verification process because it’s clearly been abused.”
Broadly, IPs welcome the imminent reforms. In a statement, R3, the trade association for UK’s insolvency and restructuring professionals, said: “Overall, the approach the Government is proposing should help to improve the integrity of the corporate governance framework and make a significant difference in the fight against fraud and increase confidence in UK plc.”
The new bill will broaden the Registrar of Companies’ powers to become a “more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the Company Register”.
Michelle Giddings, Head of AML, Professional Standards, ICAEW, says: “In a lot of circumstances, the impacts on IPs are going to be exactly the same as on all accountants. The key things around corporate reform will be that the register is more reliable, so IPs can rely on the data on the Register with more accuracy.”
The Economic Crime (Transparency and Enforcement) Act 2022, was introduced in March and includes measures for a beneficial ownership register for overseas entities holding UK real estate. This new requirement, along with the expected new powers and responsibilities in ECB2.0, means that Companies House will need much greater resources to fulfil its new powers.
Thomas Cattee, head of white-collar crime at Gherson Solicitors, believes the reforms will hugely restrict the ability of individuals to hide the proceeds of a fraud, including in relation to COVID-19 fraud. “Being able to more easily establish the Ultimate Beneficial Owners of UK land owned by overseas companies will not just assist investigating and prosecuting authorities in tracing the money flows following an alleged fraud, but also to recover the proceeds of any fraud as the reforms will provide information on individuals, which any attempts at forfeiture can then be focused against,” Cattee says.
Ministers will also introduce investigatory and enforcement powers to Companies House, as well as beginning better data cross-checking with other public and private sector bodies. The new legislation, when enforced, will also enable businesses in the financial sector to share information more effectively to prevent and detect economic crime.
Miles Hacking, Managing Associate and Insolvency Expert at Freeths LLP, says: “From the perspective of insolvency and restructuring professionals, the records held at Companies House are a vital investigation tool and often the starting point for tracing and recovering assets.
“While there will never be a perfect system and any additional red tape may not be welcomed by some, the more checks, balances and improvements that can be put in place to improve the verification and quality of information held at Companies House will no doubt assist insolvency and restructuring professionals in their day-to-day roles,” Hacking adds.
In its submission to the government’s consultation, R3 raised concerns about the Government’s proposal to move towards an all-digital filing approach, saying: “It will be important to ensure that the digital systems work effectively. Several IPs who started to use Companies House’s electronic filing process in the summer of 2020 subsequently returned to filing by paper due to a range of problems using the system. It is essential that Companies House quickly establishes a workable process for electronic filing, especially so that new statutory insolvency processes can be registered as soon as possible.”
Ahmad echoes this. “These transformations require proper coordination and although I think all-digital is a great idea, I would love to know what the strategy is, and what government is going to do in that transitional period where things can often go wrong.”
That said, most who work in insolvency and restructuring – Ahmad included – are supportive of the changes and think they are long overdue. “It’s common sense to me that you shouldn’t strike off a company [from the register] if it’s insolvent. And it’s common sense to me that before you give out a bounceback loan you should do some basic checks and balances. The system has been gamed. It’s common sense to me that these changes are necessary. I guess the only surprise is that it’s taken so long.”
It was hoped to receive draft legislation before the summer parliamentary recess to enact the bill before Christmas. However, due to the resignation of prime minister Boris Johnson and the ensuing Conservative leadership contest it is unlikely that a draft bill will be made available much before September. New provisions will then be ready by Spring 2023 at the earliest.
Only then can the UK begin the long road to reinstating trust in its financial checks and balances and ease the process for IPs to prevent and detect fraudulent activity.
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